Broadcom Beats

Broadcom (AVGO) reported 1st Quarter January 2018 earnings of $5.34 per share on revenue of $5.3 billion. The consensus earnings estimate was $5.04 per share on revenue of $5.3 billion. The Earnings Whisper number was $5.14 per share. Revenue grew 28.7% on a year-over-year basis.

The company said it continues to expect second quarter revenue of $4.925 billion to $5.075 billion. The current consensus revenue estimate is $5.03 billion for the quarter ending April 30, 2018.

Avago Technologies Ltd is engaged in manufacturing semiconductor products such as optoelectronics, radio-frequency and microwave components, and application-specific integrated circuits.

SAN JOSE, Calif., March 15, 2018 (GLOBE NEWSWIRE) -- Broadcom Limited (Nasdaq:AVGO), a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial end markets, today reported financial results for its first quarter of fiscal year 2018, ended February 4, 2018, provided guidance for the second quarter of its fiscal year 2018, and announced a quarterly interim dividend.

Basis of Presentation

The Company’s financial results include contributions from Brocade Communication Systems' continuing operations starting in the first fiscal quarter of 2018. The financial results from businesses that have been classified as discontinued operations in the Company’s financial statements are not included in the results presented below, unless otherwise stated.

Due to the Company’s 52/53 week reporting cycle, fiscal year 2018 includes an extra week in the first quarter, compared to fiscal year 2017.

First Quarter Fiscal Year 2018 GAAP Results

Net revenue was $5,327 million, an increase of 10 percent from $4,844 million in the previous quarter and an increase of 29 percent from $4,139 million in the same quarter last year.

Gross margin was $2,628 million, or 49.3 percent of net revenue. This compares with gross margin of $2,383 million, or 49.2 percent of net revenue, in the prior quarter, and gross margin of $2,001 million, or 48.3 percent of net revenue, in the same quarter last year.

Operating expenses were $1,685 million. This compares with $1,628 million in the prior quarter and $1,495 million for the same quarter last year.

Operating income was $943 million, or 17.7 percent of net revenue. This compares with operating income of $755 million, or 15.6 percent of net revenue, in the prior quarter, and operating income of $506 million, or 12.2 percent of net revenue, in the same quarter last year.

Net income, which includes the impact of discontinued operations, was $6,566 million, or $14.62 per diluted share. This compares with net income of $561 million, or $1.25 per diluted share, for the prior quarter, and net income of $252 million, or $0.57 per diluted share, in the same quarter last year. First quarter fiscal year 2018 net income reflects the significant impact of provisional income tax benefits realized from the enactment of the U.S. Tax Cuts and Jobs Act.

The Company’s cash and cash equivalents at the end of the first fiscal quarter was $7,076 million, compared to $11,204 million at the end of the prior quarter.

During the first quarter, the Company generated $1,685 million in cash from operations and received $782 million from the sale of businesses, and $237 million from the sale of real property. In the first quarter, the Company spent $5,642 million on acquisitions of businesses including payment of assumed debt, $244 million on the purchase of investments and $220 million on capital expenditures.

On December 29, 2017, the Company paid a cash dividend of $1.75 per ordinary share, totaling $717 million. On the same date, the Partnership, of which the Company is the General Partner, paid holders of LP Units a corresponding distribution of $1.75 per LP Unit, totaling $38 million.

First Quarter Fiscal Year 2018 Non-GAAP Results From Continuing Operations

The differences between the Company’s GAAP and non-GAAP results are described generally under “Non-GAAP Financial Measures” below, and presented in detail in the financial reconciliation tables attached to this release.

Net revenue from continuing operations was $5,331 million, an increase of 10 percent from $4,848 million in the previous quarter, and an increase of 28 percent from $4,149 million in the same quarter last year.

Gross margin from continuing operations was $3,454 million, or 64.8 percent of net revenue. This compares with gross margin of $3,068 million, or 63.3 percent of net revenue, in the prior quarter, and gross margin of $2,590 million, or 62.4 percent of net revenue, in the same quarter last year.

Operating income from continuing operations was $2,571 million, or 48.2 percent of net revenue. This compares with operating income from continuing operations of $2,293 million, or 47.3 percent of net revenue, in the prior quarter, and $1,806 million, or 43.5 percent of net revenue, in the same quarter last year.

Net income from continuing operations was $2,345 million, or $5.12 per diluted share. This compares with net income of $2,091 million, or $4.59 per diluted share last quarter, and net income of $1,627 million, or $3.63 per diluted share, in the same quarter last year.

First Quarter Fiscal Year 2018 Non-GAAP Results

Change

(Dollars in millions, except per share data)

Q1 18

Q4 17

Q1 17

Q/Q

Y/Y

Net revenue

$

5,331

$

4,848

$

4,149

+10%

+28%

Gross margin

64.8%

63.3%

62.4%

+150bps

+240bps

Operating expenses

$

883

$

775

$

784

+$108

+$99

Net income

$

2,345

$

2,091

$

1,627

+$254

+$718

Earnings per share - diluted

$

5.12

$

4.59

$

3.63

+$0.53

+$1.49

“We had a very good start to our fiscal year 2018 delivering first quarter revenue and earnings towards the upper end of guidance,” said Hock Tan, President and CEO of Broadcom Limited. “In the second quarter, we expect to sustain topline momentum with strong data center demand for our networking and enterprise storage products, and a seasonal recovery in broadband access, to offset a sharp seasonal decline in wireless. Importantly, we expect gross margin to expand and drive free cash flow above our long term target of 40 percent of revenue.”

Based on current business trends and conditions, the outlook for continuing operations for the second quarter of fiscal year 2018, ending May 6, 2018, is expected to be as follows:

GAAP

Reconciling Items

Non-GAAP

Net revenue

$4,997M +/-$75M

$3M

$5,000M +/-$75M

Gross margin

50.0% +/-1%

$795M

66.0% +/-1%

Operating expenses

$1,375M

$485M

$890M

Interest expense and other

$114M

-

$114M

Provision for income taxes

$56M

$47M

$103M

Diluted share count

427M

34M

461M

Non-GAAP net revenue includes $3 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions;

Non-GAAP gross margin includes the effects of $3 million of licensing revenue, and excludes the effects of $765 million of amortization of intangible assets, $25 million of share-based compensation expense, $1 million of restructuring charges, and $1 million of acquisition-related costs;

Non-GAAP operating expenses exclude $280 million of share-based compensation expense, $90 million of acquisition-related costs, $70 million of amortization of intangible assets, and $45 million of restructuring charges;

Non-GAAP tax provision is $47 million higher than GAAP due to the tax effects of the projected reconciling items noted above; and

Non-GAAP diluted share count includes the impact of the LP Units on an if-converted basis, which were not included in projected GAAP diluted share count because their effect is expected to be antidilutive, and excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the Company’s financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.

Capital expenditures for the second fiscal quarter are expected to be approximately $190 million. For the second fiscal quarter, depreciation is expected to be $130 million and amortization is expected to be approximately $840 million.

The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. Among other things, this guidance is based on an initial estimate of purchase accounting adjustments and allocations, all of which are subject to revision. The guidance also excludes the impact of any additional mergers, acquisitions and divestiture activity that may occur during the quarter. Actual results will vary from the guidance and the variations may be material. The Company undertakes no intent or obligation to publicly update or revise any of these projections, whether as a result of new information, future events or otherwise, except as required by law.

Interim Dividend

The Company’s Board of Directors has approved a quarterly, interim cash dividend of $1.75 per ordinary share. A corresponding distribution will also be paid by the Partnership, of which the Company is the General Partner, to holders of LP Units, in the amount of $1.75 per LP Unit.

The dividend and the distribution are both payable on March 29, 2018 to shareholders or unitholders of record, as applicable, at the close of business (5:00 p.m.) Eastern Time on March 22, 2018.

Financial Results Conference Call

Broadcom Limited will host a conference call to review its financial results for the first quarter of fiscal year 2018, ended February 4, 2018, and to provide guidance for the second quarter of fiscal year 2018, today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial (866) 310-8712; International +1 (720) 634-2946. The passcode is 7796628. A replay of the call will be accessible for one week after the call. To access the replay dial (855) 859-2056; International +1 (404) 537-3406; and reference the passcode: 7796628. A webcast of the conference call will also be available in the “Investors” section of Broadcom’s website at www.broadcom.com.

Non-GAAP Financial Measures

In addition to GAAP reporting, Broadcom provides investors with net revenue, net income, operating income, gross margin, operating expenses and other data on a non-GAAP basis. This non-GAAP information includes the effect, where applicable, of purchase accounting on revenue, and excludes amortization of acquisition-related intangible assets, share-based compensation expense, restructuring, impairment and disposal charges, acquisition-related costs, including integration costs, purchase accounting effect on inventory, litigation settlements, debt-related costs, gain (loss) on extinguishment of debt, gain (loss) on disposition of assets, income (loss) from discontinued operations and non-GAAP tax reconciling adjustments. Management does not believe that these items are reflective of the Company’s underlying performance. However, internally, these non-GAAP measures are significant measures used by management for purposes of evaluating the core operating performance of the Company, establishing internal budgets, calculating return on investment for development programs and growth initiatives, comparing performance with internal forecasts and targeted business models, strategic planning, evaluating and valuing potential acquisition candidates and how their operations compare to the Company’s operations, and benchmarking performance externally against the Company’s competitors. The presentation of these and other similar items in Broadcom’s non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent or unusual. Broadcom believes this non-GAAP financial information provides additional insight into the Company’s on-going performance and has therefore chosen to provide this information to investors for a more consistent basis of comparison and to help them evaluate the results of the Company’s on-going operations and enable more meaningful period to period comparisons. These non-GAAP measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial data is included in the supplemental financial data attached to this press release.

This announcement contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) concerning Broadcom. These statements include, but are not limited to, statements that address our expected future business and financial performance and other statements identified by words such as “will”, “expect”, “believe”, “anticipate”, “estimate”, “should”, “intend”, “plan”, “potential”, “predict” “project”, “aim”, and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of the management of Broadcom, as well as assumptions made by, and information currently available to, such management, current market trends and market conditions and involve risks and uncertainties, many of which are outside the Company’s and management’s control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Particular uncertainties that could materially affect future results include risks associated with any loss of our significant customers and fluctuations in the timing and volume of significant customer demand; our dependence on contract manufacturers and outsourced supply chain; our dependency on a limited number of suppliers; any acquisitions we may make, such as delays, challenges and expenses associated with receiving governmental and regulatory approvals and satisfying other closing conditions, and with integrating acquired companies with our existing businesses and our ability to achieve the benefits, growth prospects and synergies expected from such acquisitions; our ability to accurately estimate customers’ demand and adjust our manufacturing and supply chain accordingly; our significant indebtedness, including the need to generate sufficient cash flows to service and repay such debt; increased dependence on a small number of markets and the rate of growth in these markets; dependence on and risks associated with distributors of our products; dependence on senior management; quarterly and annual fluctuations in operating results; global economic conditions and concerns; cyclicality in the semiconductor industry or in our target markets; our proposed redomiciliation of our ultimate parent company to the United States; our competitive performance and ability to continue achieving design wins with our customers, as well as the timing of those design wins; prolonged disruptions of our or our contract manufacturers’ manufacturing facilities or other significant operations; our ability to improve our manufacturing efficiency and quality; our dependence on outsourced service providers for certain key business services and their ability to execute to our requirements; our ability to maintain or improve gross margin; our overall cash tax costs, legislation that may impact our effective tax rate and our ability to maintain tax concessions in certain jurisdictions; our ability to protect our intellectual property and the unpredictability of any associated litigation expenses; any expenses or reputational damage associated with resolving customer product and warranty and indemnification claims; our ability to sell to new types of customers and to keep pace with technological advances; market acceptance of the end products into which our products are designed; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature.

Our filings with the Securities and Exchange Commission (“SEC”), which you may obtain for free at the SEC’s website at http://www.sec.gov, discuss some of the important risk factors that may affect our business, results of operations and financial condition. We undertake no intent or obligation to publicly update or revise any of these forward looking statements, whether as a result of new information, future events or otherwise, except as required by law.

(1) For the fiscal quarter ended January 29, 2017, the diluted income (loss) per share numerators and denominators include the impact of the noncontrolling interest, which assumes conversion of the exchangeable limited partnership units, or LP Units, to Broadcom ordinary shares. The diluted income per share calculations include approximately 23 million LP Units for the fiscal quarter ended January 29, 2017, representing an assumed conversion of 100% of the LP Units under the “if converted” method.

BROADCOM LIMITED

FINANCIAL RECONCILIATION: GAAP TO NON-GAAP - UNAUDITED

(IN MILLIONS, EXCEPT DAYS)

Fiscal Quarter Ended

February 4,

October 29,

January 29,

2018

2017

2017

Net revenue on GAAP basis

$

5,327

$

4,844

$

4,139

Acquisition-related purchase accounting revenue adjustment (1)

4

4

10

Net revenue on non-GAAP basis

$

5,331

$

4,848

$

4,149

Gross margin on GAAP basis

$

2,628

$

2,383

$

2,001

Acquisition-related purchase accounting revenue adjustment (1)

4

4

10

Purchase accounting effect on inventory

70

2

-

Amortization of acquisition-related intangible assets

715

658

559

Share-based compensation expense

20

17

14

Restructuring charges

15

3

6

Acquisition-related costs

2

1

-

Gross margin on non-GAAP basis

$

3,454

$

3,068

$

2,590

Research and development on GAAP basis

$

925

$

828

$

808

Share-based compensation expense

203

171

141

Acquisition-related costs

3

-

3

Research and development on non-GAAP basis

$

719

$

657

$

664

Selling, general and administrative expense on GAAP basis

$

291

$

194

$

201

Share-based compensation expense

76

64

46

Acquisition-related costs

51

12

35

Selling, general and administrative expense on non-GAAP basis

$

164

$

118

$

120

Total operating expenses on GAAP basis

$

1,685

$

1,628

$

1,495

Amortization of acquisition-related intangible assets

339

441

440

Share-based compensation expense

279

235

187

Restructuring, impairment and disposal charges

130

55

46

Litigation settlement

-

110

-

Acquisition-related costs

54

12

38

Total operating expenses on non-GAAP basis

$

883

$

775

$

784

Operating income on GAAP basis

$

943

$

755

$

506

Acquisition-related purchase accounting revenue adjustment (1)

4

4

10

Purchase accounting effect on inventory

70

2

-

Amortization of acquisition-related intangible assets

1,054

1,099

999

Share-based compensation expense

299

252

201

Restructuring, impairment and disposal charges

145

58

52

Litigation settlement

-

110

-

Acquisition-related costs

56

13

38

Operating income on non-GAAP basis

$

2,571

$

2,293

$

1,806

Interest expense on GAAP basis

$

(183

)

$

(119

)

$

(111

)

Debt-related costs

32

-

1

Interest expense on non-GAAP basis

$

(151

)

$

(119

)

$

(110

)

Other income, net on GAAP basis

$

35

$

16

$

31

Gain on disposition of assets

-

-

(23

)

Other income, net on non-GAAP basis

$

35

$

16

$

8

Income from continuing operations before income taxes on GAAP basis

$

795

$

645

$

267

Acquisition-related purchase accounting revenue adjustment (1)

4

4

10

Purchase accounting effect on inventory

70

2

-

Amortization of acquisition-related intangible assets

1,054

1,099

999

Share-based compensation expense

299

252

201

Restructuring, impairment and disposal charges

145

58

52

Litigation settlement

-

110

-

Acquisition-related costs

56

13

38

Debt-related costs

32

-

1

Loss on debt extinguishment

-

7

159

Gain on disposition of assets

-

-

(23

)

Income before income taxes on non-GAAP basis

$

2,455

$

2,190

$

1,704

Provision for (benefit from) income taxes on GAAP basis

$

(5,786

)

$

89

$

10

Non-GAAP tax reconciling adjustments

5,896

10

67

Provision for income taxes on non-GAAP basis

$

110

$

99

$

77

Net income on GAAP basis

$

6,566

$

561

$

252

Acquisition-related purchase accounting revenue adjustment (1)

4

4

10

Purchase accounting effect on inventory

70

2

-

Amortization of acquisition-related intangible assets

1,054

1,099

999

Share-based compensation expense

299

252

201

Restructuring, impairment and disposal charges

145

58

52

Litigation settlement

-

110

-

Acquisition-related costs

56

13

38

Debt-related costs

32

-

1

Loss on debt extinguishment

-

7

159

Gain on disposition of assets

-

-

(23

)

Non-GAAP tax reconciling adjustments

(5,896

)

(10

)

(67

)

Discontinued operations, net of income taxes

15

(5

)

5

Net income on non-GAAP basis

$

2,345

$

2,091

$

1,627

Shares used in per share calculation - diluted on GAAP basis

426

424

439

Non-GAAP adjustment (2)

32

32

9

Shares used in per share calculation - diluted on non-GAAP basis

458

456

448

Inventory days on hand on GAAP basis

64

73

77

Non-GAAP adjustment(3)

3

1

1

Inventory days on hand on non-GAAP basis

67

74

78

(1) Amounts represent licensing revenue not included in GAAP net revenue as a result of the effect of purchase accounting for acquisitions.

(2) Non-GAAP adjustment for number of shares used in the diluted per share calculations excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method. Non-GAAP adjustment also includes the impact of the LP Units that are anti-dilutive on a GAAP basis for all periods presented except the first quarter of fiscal year 2017.

(3) Non-GAAP adjustment for inventory days on hand represents the impact of purchase accounting on inventory, share-based compensation expense, and acquisition-related costs.

BROADCOM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(IN MILLIONS)

February 4,

October 29,

2018

2017

ASSETS

Current assets:

Cash and cash equivalents

$

7,076

$

11,204

Trade accounts receivable, net

2,459

2,448

Inventory

1,291

1,447

Other current assets

394

724

Total current assets

11,220

15,823

Long-term assets:

Property, plant and equipment, net

2,747

2,599

Goodwill

26,899

24,706

Intangible assets, net

13,171

10,832

Other long-term assets

507

458

Total assets

$

54,544

$

54,418

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

816

$

1,105

Employee compensation and benefits

333

626

Current portion of long-term debt

117

117

Other current liabilities

704

681

Total current liabilities

1,970

2,529

Long-term liabilities:

Long-term debt

17,475

17,431

Other long-term liabilities

6,018

11,272

Total liabilities

25,463

31,232

Shareholders' equity:

Ordinary shares

20,851

20,505

Retained earnings (accumulated deficit)

5,132

(129

)

Accumulated other comprehensive loss

(82

)

(91

)

Total Broadcom Limited shareholders' equity

25,901

20,285

Noncontrolling interest

3,180

2,901

Total shareholders' equity

29,081

23,186

Total liabilities and shareholders' equity

$

54,544

$

54,418

BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(IN MILLIONS)

Fiscal Quarter Ended

February 4,

October 29,

January 29,

2018

2017

2017

Cash flows from operating activities:

Net income

$

6,566

$

561

$

252

Adjustments to reconcile net income to net cash provided by operating activities: